Watching their children graduation from college is a proud moment for parents, but it doesn’t mean the parenting process is over.
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After donning caps and gowns, it’s time for grads to start a career and venture into adulthood which includes managing money and creating a financial plans, and experts say parents should be an integral part of putting this plan into action.
One of the first steps for your child is to become gainfully employed. “If they don’t have a job at graduation, their full-time job is getting a job,” says Leslie Linfield, executive director and founder of the Institute for Financial Literacy. “Parents should not belabor the child into a false sense of comfort. You need to do whatever you can to get income coming in.”
Once a college graduate has an income, parents should guide their children to make smart money choices regardless of how well they have managed their own money. “You can have a situation where the child has a job but, if the parent doesn’t help that child make good financial decisions out of the gate, they may find themselves supporting that child financially,” says Scott Halliwell, certified financial planner at USAA. “If someone hasn’t made prudent financial decisions themselves, they still have more experience than a college grad.”
Whether a child lives at home on their own, there are different ways to approach each situation.
Graduates who live on their own. When your child lives in their own place, give them advice when asked, says David Giancola, director for Merrill Edge. These conversations tend to be more situation-based and will happen naturally.
Linfield recommends looking for teachable moments, such as when your child buys a car or saves for long-term goals, to have a conversation. “If you have a good relationship with your kid, they’ll be more comfortable coming to you to ask questions,” says Linfield. “When those opportunities present, that’s when there’s an opportunity to learn. Recognize it for what it is and have the patience to explain the answer.”
Graduates who live with their parents. When a college graduate moves back home, parents should make sure their children have the right intentions. “Create a budget with your child and make sure they’re part of the planning process,” says Giancola. “Make them contribute to household expenses and save.” Giancola recommends that parents treat their children with respect and help when needed, but to also take the reins so that their children stay on the right path with their finances.
A college graduate’s short-term financial plan should include steps to achieve independence. “It is wise to set a future date that your child moves out of the house,” says Giancola. “That gives them a reason to save money and be accountable for what they save.”
Depending on a family’s financial situation, parents can use a child’s rent payments in a few different ways. “The plan would include saving a down payment and the living expense budget,” says Washo. “Whatever it takes to achieve this in a certain time period.” For parents who don’t need that extra money to help with household expenses, they can charge rent and then give the money back to the child when the child moves out. This money can help their child pay for a down payment or to furnish a new home. “The key is that it goes toward something substantial for the child and not towards something intangible like a vacation,” says Washo.
When do you help? Regardless of where a child lives, Washo recommends that parents cut the purse strings except for emergencies. “When parents or grandparents supplement a child’s finances after college graduation, it becomes harder for that child to truly be financially independent as they mature into adulthood,” says Washo. “Finances aren’t just the dollar sitting in your wallet.”
If a child does ask for money, Washo recommends paying the debt directly instead of giving money to the child. “When a child’s in financial trouble and asks for help, that’s when express permission has been given to that parent to look at the child’s finances as if they’re living at home.” To understand why your child needs money and how they’re managing their finances, Washo suggests asking open-ended questions without being condemning—like why they’re asking you for money or how they’re managing their finances that they need money. “Try to learn more about the problem that led to the issues instead of just fixing the problem,” says Washo.
Saving. Washo suggest that graduates build up emergency reserves of three months of living expenses to start and moving towards six months overtime. “Historically, it takes people three months to find a new job,” says Washo. “The real key is that it’s living expenses and not just income or salary.” Once they have their reserves, then they can begin thinking about long-term goals, like IRAs and 401(k)s, but these should still be included in their living expense worksheet. “It needs to be part of the mentality that they have to do this,” says Washo.
Having a plan so that the graduate is able to manage their money is not just about being self-sufficient though. “The pride you feel when you’ve created your own financial independence is priceless,” says Giancola.